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Federal Court Issues Preliminary Injunction Blocking Overtime Rules

Good news for employers: the Department of Labor’s (DOL) new white collar exemption regulations will not go into effect on December 1, 2016. On Thursday, November 22, just days before the effective date, a Texas federal court granted an emergency motion for preliminary injunction, slamming the brakes on the DOL’s new overtime regulations that would have increased the minimum salary threshold to $47,476 annually for employees employed in a bona fide executive, administrative, or professional capacity. Judge Amos Mazzant from the Eastern District of Texas blocked the DOL from implementing and enforcing the new overtime regulations as planned on December 1. The case is State of Nevada v. U.S. D.O.L., No. 4:16-cv-00731 (E.D. Tex. Nov. 22, 2016) and a copy of the court’s opinion is available here.

The lawsuit was filed by the state of Nevada and 20 other states, and then combined with a similar action filed by the Plano (Texas) Chamber of Commerce and more than 50 other business organizations. The court consolidated the states’ case with the chamber’s case, and Judge Mazzant issued a preliminary injunction that applies nationwide for both public-sector and private-sector employers. The injunction will remain in place until a full hearing on the merits is held or unless it is overturned by an interlocutory appeal to the U.S. Court of Appeals for the Fifth Circuit.

Readers will recall that the DOL issued its Final Rule on May 18, 2016, under which the minimum salary threshold for the executive, administrative, and professional exemptions (also known as the white collar exemptions) would be increased from $455 per week to $913 per week ($47,476 per year). The Final Rule also mandated that the DOL update (i.e., raise) the salary threshold every three years, based on wage growth over time. Although the Final Rule did not make any changes to the duties test for executive, administrative, and professional employees, it set December 1, 2016, as the effective date for more-than-doubling the salary threshold. Employers invested significant time and effort to determine whether exempt, salaried employees paid less than $913 per week would be given a raise to remain exempt, or be re-classified as overtime eligible.

Judge Mazzant ruled that in the FLSA, Congress did not give the DOL any authority to establish a minimum salary level. “With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.” However, Judge Mazzant was careful to disclaim any broad ruling striking down the very concept of a salary-level test, noting in a footnote that the injunction applies only to the Final Rule’s specific amendment to the salary-level test. Nevertheless, the groundwork has been laid for a future challenge to the DOL enforcing a salary-level test even at the prior $455 per week threshold.

In addition, the Judge ruled that the DOL lacks the authority to implement the automatic updating mechanism, which was scheduled to increase the minimum salary threshold every three years beginning in January 2020. That portion of the Final Rule is also preliminarily enjoined.

This decision represents a stunning rebuke to the DOL’s attempt to carry out the executive order issued by President Obama in 2014 directing the DOL to update and modernize the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. The DOL sought to do so only by substantially increasing the minimum salary level. The Texas court ruled that action to be unlawful.

Next, although we predict the present administration will file an immediate appeal to the U.S. Court of Appeals for the Fifth Circuit, unless the appeal is expedited, it is likely to be decided after President-elect Trump takes office in January 2017. The President-elect avoided committing himself to specific policy pronouncements during the campaign, so employers must wait to see how he will move toward enacting his policy preferences with respect to his administration’s support (or not) of the DOL’s overtime rule and whether, if ultimately permitted to stand, it will be revised through rulemaking or legislation.

In the immediate future, employers who pro-actively took steps to comply with the Final Rule must grapple with complicated questions about how to respond in light of the preliminary injunction. Salary raises and re-classifications already implemented will be challenging to reverse without careful communication and consideration of the impact on employee morale. We encourage employers to work with experienced employment lawyers in evaluating next steps for their company.

Compare jurisdictions: Employment & Labor: International

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